Latvian firms after world market share

2007-03-28

By TBT staff

RIGHT PLACE, RIGHT TIME: Aleksis Orlovs, CFO of SAF Tehnika, brought his company to new heights on the back of a China deal.

The lingerie that you slipped out of last night or the medication you took for that runny nose this morning may actually be one of the vast array of products Latvian companies are designing and manufacturing for export throughout the world. Dorian Ziedonis investigates what some of these companies are doing and how they are successfully competing across global markets.

It's only relatively recently that Latvian companies have gone global. The collapse of the Soviet Union took with it markets served by local companies. It was either reinvent oneself or perish.New opportunities opened for those quick enough to attract capital and find partners. Foreign investment came here looking to buy or hire local talent, bringing access to foreign markets and introducing skills in marketing and distribution.For the companies that didn't learn their lessons and did not reorient fast enough to Western markets, the final nail came down as the Russian financial crisis of 1998 wiped out Eastern markets overnight.

Latvian industry today is producing everything from timber and furniture products to advanced software programming and telecommunications systems, this in addition to providing international banking and other services.China and Ukraine pose a threat to the prospect of low cost manufacturing here, while India's growth in outsourcing for software and financial services exposes similar risks, and most agree Latvia needs to move away from the low wage platform towards high value production.

Olainfarm, a chemicals and pharmaceutical manufacturer, is leveraging its scientific expertise to expand a business in which exports, going mostly to Russia and Ukraine, account for 80 percent of total sales. "These are our historical markets," says Deputy Chief Financial Officer Salvis Lapinsh. Breaking into Western markets in areas such as pharmaceuticals and health care is more difficult due to the regulatory environment and product approval processes. Though already providing countries in the West with basic chemicals used by major pharmaceutical manufacturers, the company hopes to bring its own finished drug products there as well. The first sales 's those of its anti-viral compound 's are expected in Norway.

Lapinsh attributes the company's success until now to a move away from being a one-product, one-market company, one in which there was no diversification of risks. Olainfarm competes in its niche between the low cost, lower quality Chinese and Indian products, and the more expensive and highly regulated Western European-produced products."We have good knowledge of markets and our customers," says Marketing Director Armands Lapins regarding their historical trends. We are "competitive on using trade technologies, our own products and original recipes," and from the West are benefiting from marketing and technologies and company renovating portfolios.

The Dambis company, working in sophisticated metal fabrication and subcontracting for mechanical and electrical assemblies for giants such as Nokia, was originally producing telecom devices for the Soviet army. Today, with over 80 percent of sales going to countries including Finland, Sweden and Germany, they follow a strategy of selling their technical know-how and production capacity.Focusing on increasingly high value added products, Dambis produces for their customers finished or nearly finished end products, in addition to having proprietary product lines.Success happens by "not putting all your eggs into one basket," says Director of Development Martins Tiknuss. The company puts more attention now on evaluating which projects make sense, what it can achieve through to the final output, and to not take everything that comes along.

SAF Tehnika started life when the phone company, in the early 1990s, wouldn't connect the founder's country home with a phone, so he invented an 'extender' to transmit calls from his neighbor's house to his. Word of mouth led to a company, and first sales, then a distribution partnership with Fortech. When the telecom bubble burst in 2001, companies pulled purchasing decisions away from technical directors and gave them to financial departments, where a closer scrutiny of costs showed SAF Tehnika's competitiveness to be in comparison with the likes of Ericsson, bringing a new round of growth.

At the right place at the right time, the company in 2002 landed a large supply contract in China when a local company couldn't deliver. Chief Financial Officer Aleksis Orlovs says the first customer is the most difficult; when you've made the first sale it gives you credibility. The China deal took the company to a new level, better quality, sales and support, and was a strong reference for the global market.

Sales in 2005/2006 reached 18.8 million euros, giving the company about a 1.5 percent global market share with 97 percent of sales going to foreign markets. They have succeeded in the face of competition with such companies as Nokia and Siemens. This through the strong focus and performance purely on microwave technology. Competitors are large well-diversified companies with many product lines each fighting for attention, whereas SAF puts all resources into what it does best.With an international marketing staff, expats are assigned responsibility for their 'home' markets. At the other end, in each foreign country they have a local partner expert in the market.

It's important in winning new customers and markets to "not be shy, you have to speak with people. If people are brand sensitive, in Europe, and it's difficult to get in the door, keep pushing, go to the end user," says Orlovs. "You just have to ask."

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